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The Luddites Among Us

Written by Gary North on February 6, 2013

Gary North’s Reality Check

Certain economic ideas that are both logically wrong and unsupported by historical facts, and which have been known to be wrong for 250 years, are still widely held. This annoys economists.

There is something that seems inherent in men’s approach to thinking about their own wealth that persuades them that what they have seen, over and over, in nation after nation, either did not happen, or, if it clearly did happen, will not continue.

One of these ideas is that sales taxes on imported goods increase the wealth of most people in society. This is the doctrine that tariffs and quotas imposed by the government somehow make people richer. This error was refuted definitively by one of the greatest philosophers of all time, David Hume, in 1752. About 25 years later, it was refuted in detail by Adam Smith, David Hume’s friend, in his classic book, The Wealth of Nations. Nevertheless, despite almost universal agreement among economists, and despite repeated political successes in lowering tariffs and quotas, which have led to increasing prosperity everywhere, there is still a hard core of anti-economics thinking that says that the federal government — but never state and local governments — needs to increase sales taxes on imported goods, or else we will all be made poor.

I have written many times about this over the last 45 years, and I intend to write a lot more, but I have no illusion that the anti-economists among us will never figure out that national sales taxes on imports do not make us richer. Some people simply do not have the intellectual capability of following a line of economic reasoning. This includes people who believe that sales taxes on imported goods make most people wealthier.

THE LUDDITE MENTALITY

There is another error, comparable to the error of the pro-sales tax non-economists, which is also widely held. This is the belief that machinery makes workers poorer. It is usually described as the Luddite philosophy. A man named Ned Ludd (or Lud) supposedly broke knitting machines in a fit of rage in 1779. In 1811, an article on Ludd was published in a newspaper. When people then began destroying machinery, they were called Luddites.

Who were the attackers? They were people who had been employed as relatively high paid producers of goods in narrow markets that catered to better-off clients. They found that they had fewer customers when other producers began to use machinery to mass produce these goods, thereby increasing the supply of goods. This forced down prices. Those guild members who had for centuries used political power in urban areas to gain a monopoly in specific markets found that price competition from these new goods was reducing their income. In response, they destroyed machinery. In other words, they used violence against property owners in order to maintain their monopoly. Before, they used political power to achieve this.

The phrase “saboteur” comes from the French word for shoe, “sabot.” Workers threw shoes into machinery in order to destroy the machinery, and thereby reduce the output of highly specific goods. This was seen as destructive by most people, but it clearly was a short-term benefit to those who were facing competition from the machines. It was one more case of violence against property owners.

Most people believe today that such violence is wrong morally, and they also believe that it is wrong economically. This is an advantage we have today. There are large numbers of people who have begun to understand a basic economic principle, namely, that whatever increases the supply of goods, and which is also profitable to the person increasing the supply of goods, is a good thing for most members of society.

The trouble is, the philosophy of the Luddites is still with us. It specifically has to do with the criticism of robotics. We still see people who have little economic understanding of the nature of free markets and their relationship to economic prosperity. These people are hostile to the use of robots in all areas of production. Well, this is not quite correct. They accept robotics in traditional lines of manufacturing, which have used robots for 30 or 40 years. In other words, they become traditionalists. The good old days were good, meaning the good old days 30 or 40 years ago. Those days were much better than the days of hundred years ago or 200 years ago.

Yet the increase in productivity which got the world to the good old days of 40 years ago was based on the adoption of techniques of mass production that we today would call robotics. It was the substitution of machinery, which in turn rested on new supplies of energy, which enabled the whole world to get richer. Think of the early inventions of the 19th century. Think of the railroad. Think of the grain reaper. Think of the sewing machine. All of these substituted equipment for manual dexterity. John Henry lost the competition to the steam driver, and the world was better off.

No matter how many stories come to us about the increased economic lifestyle that the world enjoys because of increased use of energy and increased use of machinery, the Luddite mentality still is with us. We are told that automation is going to make us poorer. We have been told this for 200 years.

But improvements in our lifestyle are based on an increased quantity of goods and services. This has made possible by automation.

There is a fundamental rule of economics which should not be ignored: anything that can be done by a machine profitably should be done by a machine. Why is this true? Because human labor is by far the most versatile and mobile of all capital. People can learn new ways of serving customers. Old dogs really can learn new tricks. But, in order to get them to learn new tricks, they need to face reality, namely, that whatever they did before to earn a living can be done better and cheaper by machine. Old dogs can learn new tricks, but necessity is the mother of invention. Old dogs prefer doing old tricks. They prefer high income for doing their old tricks. But economic progress does not let us continue to make high income from old tricks whenever there are new tools available that will enable newcomers to do the same tricks, and do them even better, at a lower price.

(For the rest of my article, click the link.)

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20 thoughts on “The Luddites Among Us

  1. I used to think backing a "Fair Tax" was the conservative answer to shrinking government spending. Then I heard the Fair Tax national spokesman say the exorbitant NRST was needed because the biggest customer of so many businesses is Uncle Sam. So the "Fair Tax" is just another ruse to maintain the status quo. Even if it did "abolish the IRS" as their rallying cry promises, those bureaucrats will be absorbed into some other useless federal agency.

  2. Hopefullly Wiser says:

    It strikes me that this is a factor in so-called age discrimination. (I am over 50 and looking for work) Younger people don't know what it was like 30 years ago and are naturally more accomodating. The new dogs are not encumbered by old tricks.

  3. Actually, taxing imported goods at a higher rate than goods manufactured at home is amazingly effective. People who want them still buy them, people who don't look for home-made alternatives and it inevitably brings jobs and money back home. Why are you always so short sighted, Dr. North?

    • The tariffs on imports allows "home-made alternatives" to be marketed at a higher price by eliminating competition. The people who can afford them will still buy them, but the lower income folks with limited resources will have to make do with used or inferior products and therefore their standard of living is lowered. Did you actually read the article?

      The same applies to minimum wages. Employers that have to pay everyone equally regardless of skill level and therefore uneven production or "value" if you will, will simply work the skilled laborers harded and refrain from hiring the less skilled. Higher rates of unemployment among minority teens and other unskilled workers are a terrible consequence of minimum wage laws as noted by the same economist that oppose import tariffs, but I'm sure you think that they are short sighted also.

      • On the other hand to your opinion, if you have no job because most jobs were sent away for cheaper labor, then you have no income at all to buy the cheap goods – and then you will expect the remaining workers to maintain your life via government programs.

        I can see no problem, in general, with a finite market that ends at our sovereign border as opposed to a global market ending at earths atmosphere. Or, will we next have intergalactic markets to compete with while the USA as a sovereign nation just dries up and blows away – and the Earth's economy also suffers because it can't compete with cheap goods produced on Mars for sale around the galaxy. Forgive my absurd illustration, yet my point is that even the global market is finite and will reach an equilibrium.

        So, why not be more a lot more isolationist in the US and, for the most part, promote an equilibrium where we use tariffs buy what we build and build what we buy, and put export taxes on raw material and intellectual property – and allow primarily national-regional market forces to reign? So what if no one else wants to trade with us on a large scale – we can have our own market equalibrium. We got in this mess by borrowing from the world to buy anyway.

        • Re: jfhunt50,
          – if you have no job because most jobs were sent away for cheaper labor, then you have no income at all to buy the cheap goods —

          Only if you stubbornly and irrationally cling to doing that particular job. Your contention makes no sense when applied to thinking people.

          – So, why not be more a lot more isolationist in the US[?] —

          Only if you want NO jobs and EXPENSIVE things. Otherwise, there's no reason to be more isolationist. North Korea is the only totally self-suficient place currently on this planet. I wonder if you thought out what you wrote…

          • Hey Old Mexican, Fear not since I am a thinking person, yet one who does not agrees with the current thoughts you and others parrot regarding the economy. I won't reiterate all of my other other comments, but we are being manipulated into making false choices. We will fall into trap, yet whether it will be the one proposed by the Progressives or the Neo-Cons is to be determined – choose your ruler.

            First, your straw man does not change my mind since I mentioned no specific job other than making what we buy. Second, we are not North Korea since we have a Declaration and Constitution to guide our function – something that seems lost on "deep thinkers" these days since it has not been spoon fed to them anymore in school and they are not thoughtful enough to examine the founders principles and model, and see its wisdom still today. When a communist state is glibly compared to a country/economy functioning according to our founding principles and documents, it surely must show the very shallow depth of thought applied by "thinking people".

            So anyway, I was expecting a more serious explanation or defense of this system that is trashing the US economy and making only the global entrepreneurs and Banksters rich. But alas, you have failed miserable with your retorts. I had hoped for a more substantial defense.

            There are many people more than willing to work – some are not, but most are – yet jobs to build what we consime here have been taken away with nothing to replace them, while our intellectual property is often used to support the facilities and labor that builds the products we buy. Whether you have a valid point or not, you are unconvincing.

            Think about what the world will look like when the global economy finally reaches equilibrium. I guess then we will have long forgotten the American experiment and will have global "managers" and central planners to take care of us – just like North Korea.

            Think about it, just think ……

          • when was the last trip you made to n korea? do you recall the many times that nations who have manufacturing and crop growing in excess have sent ship loads of grain and products to the commie rats in n korea? are you a graduate of stalin u?

      • However, I agree on minimum wage.

    • Your argument seems to be another example of the “broken window fallacy. What the consumer pays in the form of tariff because she prefers to drive a Lexus instead of a Lincoln is money she will not be spending elsewhere.

  4. The only tax that makes sense is a transaction tax. We ought to abolish income, sales, and property taxes completely and just tax all financial transactions (excluding cash transactions up to a certain). Every deposit, withdrawal, and transfer should be taxed a minuscule fraction of a percent (capped by Amendment to a specified percentage, or percentages for different types of transactions). Poorer people move less money, so they’d pay lesser tax. Rich people couldn’t avoid the tax by moving their money around freely, and essentially there’d still be a sales tax, but it would cost everyone less. The states would collect their share of the transaction tax and remit the remainder to the federal government. There’d be no end of year filing. We’d return to a cash-based society as people would prefer to use cash.

    But then JP Morgan, Bank of America, and the rest of the swindlers would have to pay taxes on their imaginary money transactions…and that’s never going to happen. Why should they have to pay taxes on the money they create out of thin air?

    A few years back the politicians proposed a transaction tax IN ADDITION to existing taxes. That’s ludicrous. It would work beautifully for 90% of Americans if all taxes were replaced solely by a transaction tax.

  5. Bill Smith says:

    Well call me a Luddite! When I got out of highschool(1960) there were factory jobs available, and after a kid got experience he got a raise or went down the street to another factory for more pay. Lots of people with lots of jobs meant lots of spending in a growing economy. These wonderful robots don’t do much buying in my community. In that respect they don’t add to the economy. I agree they do amazing things for manufacturing, but I’m glad I have no kids or grandkids that have to compete with them for a living.

    • Re: Bill Smith,

      Ok, you're a Luddite.

      – These wonderful robots don't do much buying in my community. —

      Neither do any of the other machines that produce things. The reason why your standard of living is much higher than what kings of old could ever hope for is precisely because of mechanized production.

    • It is amazing how many people blame the loss of jobs on mechanization or "those jobs went overseas" when the real problem in many areas of the "rust belt" was asinine tax pressure and wages in the stratosphere. The companies first moved to southern states, searching for tax breaks and labor pricing that would allow them to compete(remember the Generous Motors example of the Saturn?) then to Mexico where they had no EPA and OSHA government mandates for a whole host of things that had to be paid for, just bribes….Now they left Mexico for chinkeeville. Tariffs are simply government tools requested by companies to make them more competitive when foreign governments insist on subsidizing their businesses that deal in exports. I am sure that communism will win out here, we have too many people that are learning how to put prophylactics on cucumbers instead of learning what economics really means and how backwards taxing policies destroy economic engines…………..

  6. But Bill, I bet you’ve got a self-propelled lawn mower or hire a guy that uses one, and you don’t have to work so hard because of it, or you pay less because your law guy invested in that piece of equipment that allows him to do more, earn more, and charge less.

    Where do we draw the line on what technological advancement is good/bad? Would your wife rather pay to have someone else do the laundry or do it herself with a board and bucket? No, she wouldn’t. But years ago there were thousands of people put out of work when laundry machines (albeit manually operated ones) entered the market. And what about the guy who shod horses? He lost out with the automobile. You want to trade your car or truck for a horse and then have to feed and maintain it?

    People, if you don’t like the consequences of technology, join the Amish. Get yourself some acreage, light your house with oil lamps and candles, raise a barn, and work the land.

    It’s simply not possible to limit technology. From the beginning man has sought ways to get more and do more with less effort (labor), time, and money. You can’t pick and choose with this one; it’s all or nothing.

  7. Hmmmm, Dr. North from my perspective, I cannot completely agree with your very thin analysis of technological advancement, Luddites, and tariffs – the US in the current global economy. Deceit and erroneous analysis often results from what is NOT said even when true facts are presented. (I also wonder what would you would say if political commentators were being replaced by artificial intelligence or cheap offshore commentators.)

    It is all very comfortable to sit there and think about how society should be managed. It seems that it is just as easy for the conservative elite as it is for the progressive elite to flippantly discuss and all but dismiss a struggling US labor force as a "sea of bodies" to be managed. I believe your primary omission is that you only discuss Americans labor's fear of embracing technology as it is related to import tariffs. You seem to imply there are no other linkages to the apprehensions of American labor. How wrong it is if you assume that embracing technology is the same as embracing all of the implications of the US in a free-market, global society – that is, a US society where jobs are shipped offshore for cheaper sources of labor, while Americans are unemployed – or while cheaper labor is flooding across our borders.

    Plus, the issues are not simply a choice between embracing technology and fearing it. We should not believe that these are the only players related to business, the economy, and labor's niche within. Yes, we might have short-sighted Luddites and their counterparts who embrace technology, but we also have greedy globalist-Banksters (whether Progressive or so-called Conservatives), and we also have those citizen-laborers who want to live under the Constitution without the manipulation of Central Banks. Specifically, the later are those who desire to build what they buy – whether it is built with their hands, by robots, or by using any other new technology that is located within our borders.

  8. On a related note to tariffs, we should NOT be expected to, without question, compete in the global marketplace for the natural resources we have located within our sovereign borders (yes, I know sovereignty is a dirty word to globalist entrepreneurs). Natural resources, plus certain other resources related to intellectual property, should be taxed when exported to maintain prices according to national/regional markets. It would not necessarily be likewise for finished goods wherein we have added the value of our labor. They are our resources.

    If we do not consider the USA a sovereign economic unit including business, labor, and resources, there will surely those misguided politicians who will call for nationalization of natural resources – and even businesses. (We see the signs already.) Further, when we sell our natural resources outside our borders without adding the value of our labor to make finished products, we become simply a "colony". In fact, the sovereign USA has nearly become a colony managed by a manipulative, global, financial elite – nothing less than our remaining sovereignty is at stake..

    So, I am afraid we are being set-up to make a false choice only between Capitalism and Communism – with the status quo being passed off as "so-called" Capitalism, to the the uninformed. We do NOT have Capitalism at the present time, and we have not likely not freely functioned as such in the USA since 1913 – after "Jekyll Island". Since then we have operated according to the perversions of the Central Banks and Wall Street shenanigans in markets – it is getting worse, not better., We have now become a lobbyist-driven form of Fascism, or at least a very close facsimile. Now, both Progressives and Neo-Conservatives are taking us farther in that direction each day – and they each plan to manage us and our collective wealth for their own political power and economic benefit. The country, and primarily the middle class, has been raped by those who will do what is expedient for them as "herd managers" while absolutely ignoring our Constitution and founding principles.

    Yes, I think at Jekyll Island and Bretton Wood we were given great lives – based on debt and death, and for only one or two generations . However, if we in the USA continues to pretend that everything is just fine with the currently failing system of anti-nationalist, global business and unchecked Central Banking, then our economy, our middle class, our freedoms, and our overall moral fabric are doomed!!

    We were founded on sound social, governmental, and economic principles. But, if we adopt the consensus of the rest of the world or if we allow foreign entanglements with those who manipulate the world as if it were there very own "machine", then we do it at the peril of ourselves and future generations, who, with"reliance on God", want to continue implementing these United States according to "the most excellent foundational ideas" on this planet.

    I am not a PhD Economist and I do not play one on TV, yet I give you my humble perspective. Nevertheless, based on my stated opinions I am afraid that when given the false choice between "the current system", which is being passed off as "Capitalism", and Communism as it's alternative, far too many citizens will choose Communism and thus enslave us for generations. We are seeing that choice being (unwittingly?) made in the recent elections. As I noted, deception is often found in what is omitted from otherwise truthful words. So now, please tell me where I might be so wrong in expanding on your topics with my opinions?

    Dr. North, let's try to look at a bigger picture when you discuss bad attitudes among struggling citizens in our labor force or promote a "let them eat cake" attitude – or we might simply need to put you on the shelf with the buggy whips, and then produce your deep insights with a new machine ….

  9. Brooklyn emigrant says:

    Some Luddites work for the public sector. In 1992 a machine was marketed to perform several track bed maintenance tasks in subways. One person operated it while one was a safety observer for oncoming trains. It could replace twenty workers with sledge hammers, 7 foot long pry bars, and shovels. It worked faster, safer and cheaper. But in NYC, the central commitee (or predominant party) would lose those twenty (union) votes, far more important than the great savings for the captive taxpayers. Resisted to this day.
    Pleased I voted with my feet and wallet, as this is just one of dozens of cases of waste, mis-management and fraud.

  10. Erik Osbun says:

    The Luddites!

  11. This article is right on!

    All those nay-sayer Luddites are responding via computer linked to the internet! HA! Practice what you preach – try the USPS!

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